Reason revealed! Hanwha Group's acquisition of Daewoo Shipbuilding is a done deal.

Hanwha Group, South Korea's seventh-largest conglomerate, has finalized its acquisition of Daewoo Shipbuilding. With the acquisition of Daewoo Shipbuilding, Hanwha Group has completed its layout for the LNG eco-friendly energy industry chain and is also one step closer to realizing its dream of becoming one of the "world's top ten defense companies."

According to South Korean investment banking (IB) industry sources on October 17, as of that day (the bid deadline), no letters of intent (LOI) were received from other potential investors (acquisition candidates) in the bidding for Daewoo Shipbuilding shares conducted under the stalking horse procedure. This means that without any additional acquisition candidates, Hanwha Group has become the sole bidder for Daewoo Shipbuilding. It is expected that the pace of the relevant acquisition procedures will further accelerate, with the share purchase agreement (SPA) potentially being signed as early as next month.

After signing a conditional investment agreement (MOU) with Hanwha Group on September 26, which included a paid-in capital increase plan of 2 trillion KRW (approximately 1.406 billion USD), the Korea Development Bank (KDB) decided to conduct a bidding process for Daewoo Shipbuilding shares under the stalking horse procedure to provide an opportunity for investors who could offer more favorable terms than Hanwha Group.

Since no additional acquisition candidates ultimately emerged, Hanwha Group will proceed alone with detailed due diligence and price negotiations to complete the acquisition of Daewoo Shipbuilding. Daewoo Shipbuilding stated that the contract signing is expected to be completed within 6 weeks.

South Korean investment banking industry sources stated: "The Korea Development Bank has a strong will to sell Daewoo Shipbuilding, and Hanwha Group also has a strong will to acquire it, betting 2 trillion KRW, so the transaction speed is faster than expected. Hanwha Group has decided to carry out a full acquisition of Daewoo Shipbuilding and is accelerating the development of its future blueprint by conducting detailed due diligence to formulate workforce composition and post-merger integration (PMI) work plans."

South Korean investment banking industry sources revealed that Hanwha Group will conduct a 6-week detailed due diligence on Daewoo Shipbuilding. If the final acquisition price negotiations, which will proceed concurrently with the due diligence, go smoothly, the share purchase agreement could be signed as early as next month. Subsequently, if relevant domestic and international approvals, such as corporate merger and defense industry approvals, are obtained, Hanwha Group will proceed with a paid-in capital increase for Daewoo Shipbuilding as planned, concluding the transaction.

It is understood that Hanwha Group will acquire a 49.3% stake in Daewoo Shipbuilding, along with management rights, through a paid-in capital increase of 2 trillion KRW, among other forms. Companies participating in the paid-in capital increase include Hanwha Aerospace (1 trillion KRW), Hanwha Systems (500 billion KRW), Hanwha Impact Partners (400 billion KRW), and three subsidiaries of Hanwha Energy (100 billion KRW). The shares of existing Daewoo Shipbuilding shareholders, such as Korea Development Bank and Hana Bank, will be diluted. Currently, the largest shareholder, Korea Development Bank, will see its stake (55.2%) decrease to 28.2% after the paid-in capital increase. Hana Bank's stake, currently 8.4%, is also expected to decrease to around 4%.

The South Korean investment banking industry predicts that Hanwha Group may collaborate with financial investors (FIs) in the future. This is because, with the recent multiple benchmark interest rate hikes by the Bank of Korea, financing rates for acquisitions have also risen significantly, making partnerships or alliances with financial investors who possess capital a potential breakthrough.

Furthermore, to facilitate the sale of Daewoo Shipbuilding, Korea Development Bank has reduced Daewoo Shipbuilding's "value" from approximately 6 trillion KRW in the past to about 2 trillion KRW. Nevertheless, analysis suggests that due to factors such as the era of high interest rates and uncertain external environments, there are not many companies in South Korea capable of conducting acquisitions in the trillions of KRW.

Nevertheless, there may still be variables in this transaction before the acquisition is completed. This acquisition is being conducted through a stalking horse bid, so if an investor offering better terms emerges, the existing contract could be terminated. If bidding competition ensues, the acquisition timeline might be delayed.

However, the South Korean industry generally believes that due to Daewoo Shipbuilding's long-term deteriorating financial condition and continued losses, the acquirer will inevitably have to inject additional funds even after the acquisition is completed. Therefore, it would be difficult for companies without the prospect of mid-to-long-term business synergies to easily enter the bidding for Daewoo Shipbuilding. Based on this fundamental situation, Hanwha Group is currently the only company interested in acquiring Daewoo Shipbuilding.

At the same time, the union issue is also a challenge that needs to be addressed. The Daewoo Shipbuilding union maintains a strong stance, demanding that Hanwha Group guarantee continued employment for all executives and staff. Some individual predictions suggest that the Daewoo Shipbuilding union might impede Hanwha Group's due diligence, among other things. A relevant official from Hanwha Group stated: "Because the Group has a very strong will to acquire Daewoo Shipbuilding, we have officially announced the acquisition news and will do our utmost to ensure a successful acquisition."

Hanwha Group is one of South Korea's top ten conglomerates. Its predecessor, Korea Explosives, was founded in 1952 and laid a solid foundation for the group's development as a leader in Korea's explosives and basic industries. After years of development, it has grown into an international manufacturing and trading enterprise covering three major areas: global, defense, and machinery. Hanwha's business scope includes chemicals and materials, machinery and defense, photovoltaic energy, finance, services and leisure, and construction. As the number of affiliated companies distributed worldwide increases, integration provides momentum for high-quality sustainable growth.

In 2014, Hanwha Group acquired Samsung Group's two major defense subsidiaries, Techwin and Thales, becoming South Korea's largest defense company with the most comprehensive product system. Hanwha Techwin primarily operates in security, energy equipment, industrial equipment, and defense industries, as well as in robotics and control. Hanwha Thales has focused on research and development of radar and marine systems. Through resource integration, Hanwha has become a leader among South Korean defense companies.

In 2015, Hanwha Group acquired Samsung Total. Through the integration of resources with other chemical companies under Hanwha, Hanwha Total became a leading global petrochemical enterprise. Hanwha Total is an integrated energy petrochemical company, whose main products range from base oils to polymer resins like ethylene and propylene, chemical products like polyethylene (PE) and polypropylene (PP), and petroleum products like xylene (PX) and styrene monomer (SM), covering all aspects of daily life.

It is understood that Hanwha Group has identified areas such as energy, carbon neutrality, defense, and aerospace as its future growth drivers and expects the acquisition of Daewoo Shipbuilding to be an opportunity to rapidly foster new businesses.

Among them, Hanwha Aerospace, a subsidiary of Hanwha Group, provided 50% of the acquisition funds this time. Through Daewoo Shipbuilding's special purpose vessel (military ship) business, it can build an "integrated land, sea, and air defense system" and achieve the goal of becoming one of the "world's top ten defense companies" by 2030.

Meanwhile, Daewoo Shipbuilding's merchant ship business can also create synergy with Hanwha Group's energy business. Hanwha Group operates LNG power generation, hydrogen co-firing power generation technology, and ammonia energy businesses, so it plans to connect these with Daewoo Shipbuilding's LNG and other eco-friendly energy transportation technologies to build an eco-friendly energy value chain covering production, transportation, and power generation. Currently, Hanwha Group already has a business structure that imports LNG from the United States and generates electricity through the Tongyeong Eco Power company. Hanwha Group expects that by adding Daewoo Shipbuilding's floating liquefied natural gas (FLNG) and LNG floating storage regasification unit (LNG-FSRU) technologies, it will cover all areas of the industrial chain in the rapidly growing LNG market in the future. (Wang Chu)